Legal Issues

Appeal in the Chevron Case Will Test the Boundaries of RICO

Newly filed appeals in the Chevron-Ecuador oil pollution case have set the stage for a potentially important court decision on the reach of the federal anti-racketeering statute as a corporate tool for combating liability lawsuits.

As I’ve noted, business interests increasingly view the civil provisions of the Racketeer Influenced and Corrupt Organizations (RICO) Act of 1970 as a means to fight what they consider bogus suits. Litigation based on fraud, according to this view, ought to be deterred and punished under a law originally aimed at traditional organized crime syndicates. Plaintiffs’ lawyers, unsurprisingly, see the trend as an ominous attempt to distort a federal statute, demonize corporate critics, and evade responsibility for misconduct.

Chevron (CVX) has set the standard for wielding RICO as a table-turning device. After suffering an historic $19 billion defeat in February 2011 in an oil contamination case in Ecuador, the U.S. company won a ruling in March that the main plaintiffs’ attorney in the case, Steven Donziger, had orchestrated a vast extortion conspiracy in the form of a lawsuit.

If left undisturbed, the RICO decision by U.S. District Judge Lewis Kaplan of Manhattan could make it difficult or even impossible for Donziger and his clients—poor residents of the Amazon rainforest—to enforce the 2011 judgment. (The Ecuadorian Supreme Court has upheld the liability finding against Chevron but cut the damages to $9 billion—still serious money.)

Now Donziger has filed his expected appeal of the RICO verdict with the U.S. Court of Appeals for the Second Circuit in New York. The case, which will be argued in the fall, gives the Second Circuit an opportunity to clarify the latitude corporate defendants have to undermine expensive liability verdicts by seeking to reframe hostile suits as the equivalent of old-time Mafia shakedown schemes.

The first notable aspect of the Donziger appeal is that the opposing parties’ legal forces have been equalized. At the RICO trial in the fall of 2013, Chevron’s vast team from the firm Gibson, Dunn & Crutcher overwhelmed a patched-together squad of trial attorneys and activist volunteers representing Donziger and his Ecuadorian clients.

For the appeal, Donziger has hired Deepak Gupta, a rising star in the Washington (D.C.) appellate bar, and Gupta has deployed an impressive team drawn from his own boutique firm and academia. Burt Neuborne, a professor at New York University Law School and a prominent human-rights advocate, has filed a complementary brief on behalf of the Ecuadorians. Gibson Dunn will respond for Chevron, but the Los Angeles-based corporate firm’s manpower will be irrelevant in the more theoretical, less labor-intensive arena of appellate combat.

The RICO defendants—Donziger and his clients—have entirely respectable, if highly technical, arguments that Judge Kaplan exceeded his authority under the racketeering law. The strongest of these positions is that RICO should not be read to allow for the sort of judicial order that Kaplan issued in Chevron’s favor.

The trial judge said that in light of ample evidence that Donziger used fabricated evidence, coercion, and even bribery to procure the Ecuadorian judgment, the American lawyer and his clients shouldn’t be allowed to profit from their ill-gotten court victory. Under existing Second Circuit precedent, it’s an open question whether RICO provides a trial judge with the power to enter such a far-reaching order (known as an injunction), especially when a private plaintiff doesn’t seek money damages, as Chevron did not.

Gupta makes the RICO-injunction argument, along with other assertions about alleged errors by Kaplan. Those points are the sort of bloodless, purely legal bases that appellate courts prefer when asked to reverse a trial judge, especially one with Kaplan’s reputation for erudition. Embracing such technical arguments would not require the Second Circuit to second-guess Kaplan’s copious findings about Donziger’s misconduct.

Donziger’s appeal, however, dwells extensively on the debate over whether he’s a sometimes-hyperbolic tribune of the oppressed, as he would have it, or a veritable gangster, as Chevron and Kaplan see it. Gupta specifically asks the Second Circuit to reverse Kaplan’s factual findings about Donziger, something appellate courts are usually wary of doing, and even vindicate the attorney’s professional reputation.

This choice to spend more than half of a 120-page brief on the details of how the underlying pollution case was handled invites the Second Circuit to inspect a record replete with damning admissions by Donziger and many of his former allies. A long list of his fellow American lawyers and technical experts have disavowed their roles in the case and accused Donziger of dishonesty.

As an appetizer for its forthcoming response in court, Chevron issued this statement:

“Steven Donziger and his associates were found by a U.S. court to have committed racketeering, extortion, money laundering, wire fraud, Foreign Corrupt Practices Act violations, witness tampering, and obstruction of justice in obtaining the Ecuadorian judgment against Chevron. Donziger, his Ecuadorian legal team, and other associates, fabricated environmental evidence, pressured scientific experts to falsify reports, plotted to intimidate judges into handing down favorable rulings, bribed court-appointed experts, ghostwrote court reports and even drafted the final judgment. We are confident that the judgment against them will be upheld.”

Gupta’s decision to devote so much energy to defending Donziger’s conduct—rather than focusing on more esoteric matters of statutory interpretation—risks turning the appellate arguments into another prosecution of the plaintiffs’ lawyer. That may be a battle that Donziger favors. It’s less clear that it’s a battle that favors the interests of his clients. After all, two decades of litigation have yet to clean up any of the pollution in the rain forest or provide for improved medical care for its impoverished residents.